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World over, many countries are grappling with the twin challenges of reducing dependence on foreign energy sources as well as decreasing emissions of greenhouse gases, the topic of carbon dioxide (CO2) enhanced oil recovery (EOR) has therefore received increased attention.

Studies reveal that CO2 -EOR has a substantial immediate- to long-term role to play in both increasing domestic oil production in a responsible way, and in sequestering CO2 underground. CO2 EOR can add value by maximizing oil recovery while at the same time offering a bridge to a reduced carbon emissions future. It also reduces the cost of sequestering CO2 by earning revenues for the CO2 emitter from sales of CO2 to oil producers.

Enhanced Oil Recovery (also known as improved oil recovery or tertiary oil recovery) is a technique that is employed to increase the recovery of crude oil by injecting carbon-dioxide into the pore spaces of the rocks to extract from an oil field.

Now, how does injecting CO2 into the pore spaces of a rock aid in crude oil recovery?

When carbon-dioxide is injected into an oil reservoir, it mixes readily with the residual crude oil/ stranded oil. (oil that is left in the reservoir after conventional recovery techniques have been completed is referred to as stranded oil).

The solubility increases further when the carbon-dioxide is compressed and the oil contains lesser hydrocarbons (low-density) At one point, the miscibility of carbon-dioxide and oil stops.

As the temperature increases (and the CO2 density decreases), or as the oil density increases (as the light hydrocarbon fraction decreases), the minimum pressure needed to attain Oil/CO2 miscibility increases.

Therefore, when the injected CO2 and residual oil are miscible, the physical forces holding the two phases apart disappears. This enables the CO2 to displace the oil from the rock pores, pushing it towards a producing well just as a cleaning solvent would remove oil from your tools.

This CO2 “flooding” used for enhanced oil recovery can result in a recovery of up to 20 percent more of the original oil in place.

First, CO2-EOR provides a large, “value added” market for sale of CO2 emissions captured from new coal-fueled power plants. The size of this market is on the order of 7,500 million metric tons between now and 2030. Sales of captured CO2 emissions would help defray some of the costs of installing and operating carbon capture and storage (CCS) technology. These CO2 sales would support “early market entry” of up to 49 (one GW size) installations of CCS technology in the coal-fueled power sector.

Third, the oil produced with injection of captured CO2 emissions is 70% “carbon-free”, after accounting for the difference between the carbon content in the incremental oil produced by EOR and the volume of CO2 stored in the reservoir . With “next generation” CO2 storage technology and a value for storing CO2, the oil produced by EOR could be 100+% “carbon free”.

CO2 EOR and Sequestration

Before embarking on analyses of the purported cost savings potential, energy security, and environmental benefits of CO2-EOR, it is important to briefly clarify the distinction between CO2-EOR and CCS. CO2- EOR represents the process by which CO2 is injected into depleting oil fields for the purpose of enhancing the recovery fraction of the oil that remains in the field following primary and secondary production methods (Meyer, 2007). According to recent survey data by Koottungal (2010), there are 129

CO2-EOR projects operating around the world, with 114 of those in the U.S. Given the lack of binding GHG constraints in the countries where these CO2-EOR operations are taking place, one must assume that each of these projects is focused on optimizing oil recovery. The vast majority of CO2-EOR projects inject CO2 produced from natural underground accumulations; in the U.S. and Canada, naturally-sourced CO2 provides an estimated 83% of the CO2 injected for EOR, with anthropogenic sources providing the rest (Moritis, 2010).

CO2 EOR is being used by industries as it seems to hold a great potential for the permanent storage of carbon-dioxide. Though many experts raise concern over the issues caused by geologic sequestration, studies reveal that the CO2 EOR could be one of the best alternatives for dealing with carbon emissions in a safe manner.

EOR operations account for 9 million metric tons of carbon, equivalent to about 80 percent of the industrial use of CO2 , every year. Although about 20 percent of CO2 used in EOR comes from natural gas processing plants, the majority used for EOR comes from natural underground sources and does not represent a net reduction in CO2 emissions. However, industrial carbon capture and storage (CCS) offers the potential to significantly alter this situation.

Because of the cost of naturally sourced CO2—roughly $10-15 per metric ton—a CO2 flood operator seeks to recycle as much as possible to minimize future purchases of the gas. All of the injected CO2 is retained within the subsurface formation after a project has ended or recycled to subsequent projects. After years of experience with CO2 floods, oil and gas operators are confident that the CO2 left in the ground when oil production ends and wells are shut in will stay permanently stored there, assuming the wells are properly plugged and abandoned.

Market for Captured CO2 emissions offered by EOR

The size and value of the market for captured CO2 emissions offered by enhanced oil recovery rests on three pillars:

(1) the size and nature of the domestic crude oil resource base, particularly the large portion of this resource base unrecoverable with existing primary and secondary oil recovery methods;

(2) the ability of CO2-EOR to recovery a portion of this currently unrecoverable (“stranded”) domestic oil, while efficiently storing CO2;

(3) the impact of alternative oil prices and CO2 costs on the volume of oil that could be economically produced

Source: RC Ferguson, 2009

Revenue Streams from Sale of CO2 and Production of Oil.

A most important benefit from integrating CO2-EOR and CO2 storage is that productive use of CO2 for oil recovery, as opposed to its non-productive disposal in saline formations, would provide a series of revenue streams:

One of these revenue streams (or cost avoidance) would accrue to the capturer of the CO2, helping lower the overall cost of conducting CCS.

A second revenue stream would accrue to state (and local) governments (or the National treasury if the EOR project is on Federal lands) from royalties, plus severance and ad valorem taxes. These revenues, in states such as Texas and Wyoming, are a primary source of funds for school systems and other public services.

A third revenue stream would accrue to a variety of individuals and entities from royalty payments, equipment sales, jobs and profits stemming from a successful CO2-EOR project.

Over 48 million metric tons (tonnes) per year of CO2 are used for EOR. Of this total, about 25 percent (12 million tonnes) is anthropogenic in origin i.e., produced by human activities such as oil refining or fertilizer manufacturing (Trinity 2006). The rest is extracted from naturally occurring deposits.

The CO2 used to increase oil production is an expensive commodity, and for this reason oil companies are motivated to ensure that up to three quarters of CO2 injected remains underground in the oil field. The amount of CO2 sequestered is highly dependent on whether the field is blown-down following any CO2 operations. Further research and development in this area is expected to improve the storage rate to close to 100 percent. Estimates made by the U.S. Department of Energy.

To defray higher costs associated with CO2 for EOR projects, the US tax code has included ‘tertiary incentives’ since 1979 including an exception that allowed CO2-EOR crude to be sold at then free market prices, an exemption from the US windfall profits tax and a credit for production fuels from non-conventional sources.Finally, the US Federal EOR Tax Incentive was codified in 1986 enabling a 15% investment tax credit. There are currently eight states that offer additional EOR tax-incentives on incremental oil. CO2 EOR floods recover 206,000 barrels of oil per day (BOPD) representing 12% of the US oil production. (DOE) show that depleted oil and gas wells in the United States and Canada have the potential to sequester over 82 billion tonnes of carbon in total (DOE 2007).

Governments of the UK and Norway share the most immediate vested interests to create a demand for CO2 in the North Sea. For the UK exchequer this could provide a substantial revenue stream from taxation on incremental oil, additional jobs and improved balance of payments due to reduced energy imports.

The Norwegian government is recognised as being well versed with managing its oil assets and still retains a large equity ownership through its stakes in Petoro (100%), Statoil (78%) and Norsk Hydro (44%) and a 78% offshore taxation rate. The Norwegian Petroleum Directorate conservatively estimates that a potential of 1.5 to two billion barrels CO2-incremental oil exists on the NCS with a value of US$45 to US$55 billion.

Key Implementation Challenges:

A key implementation challenge for using CO2-EOR to accelerate CCS is matching CO2 sources from power and industrial plants with large oil fields favorable for enhanced oil recovery.

Certain regions, such as the Electricity Reliability Council of Texas (ERCOT), already contain large oil fields favorable for CO2. As such, with about 100 billion kilowatt hours of coal-fired generation and about 100 million metric tons of annual CO2 emissions from coal-fired power (equal to 3 billion metric tons in 30 years), entities within the ERCOT area should be able to relatively easily implement CO2-EOR and CO2 storage, assuming proper economic incentives and/or regulations are in place. (Source: MIT, 2010)

Other reasons which prevent the implementation of CO2 projects include:

Project cash flow – a major objection to CO2– floods by operators in the US and Canada has been the relatively high initial investment and CO2 costs coupled with a possible long response time of one to two years before noticeable incremental oil production. For smaller independent operators moving into the North Sea, such considerations can be just as important as maximising total recovered reserves.

Project risk management – operators know that CO2 will enable them to recover significant quantities of incremental oil and the technology does exist to do this; They do not receive sufficient rewards to compete for internal capital against a new field development in another oil region with lower production costs. Governments are in competition for investment capital in their oil regions and more costly tertiary recovery will not take place without incentives that address this fact.

Cost and Economics of CO2 Enhanced Recovery

Carbon-dioxide EOR is a very capital intensive exercise, the highest cost for such type of projects is mainly the purchase of carbon-dioxide. For example, some of the cost components for enhanced oil recovery include drilling wells to serve as both injectors and producers. Even installing a CO2 recycle plant and corrosion resistant field production infrastructure, and laying CO2 gathering and transportation pipelines could be capital intensive.

There are three fundamental economic indicators that help quantify the commercial viability of a CO2-EOR project:

(i) The delivered price of CO2 at the oilfield.

(ii) The value of permanently stored CO2 as a greenhouse gas (GHG).

(iii) The value of the incremental oil (ie. volume and price).

Both capital and operating costs for an EOR project can vary over a range, and the value of CO2 behaves as a commodity, priced at pressure, pipeline quality, and accessibility, so it is important for an operator to understand how these factors might change.

Total CO2 costs (both purchase price and recycle costs) can amount to 25 to 50 percent of the cost per barrel of oil produced. In addition to the high up-front capital costs of a CO2 supply/injection/recycling scheme, the initial CO2injection volume must be purchased well in advance of the onset of incremental production. Hence, the return on investment for CO2 EOR tends to be low, with a gradual, long-term payout.

Break- up costs:

Costs breakdown for a CO2 – EOR/storage operation in the North Sea (Source: IEF, 2010)

Oil Price ($/Barrel)

$70 *

Gravity/Basis Differentials, Royalties and

Production Taxes

($15)

Net Wellhead Revenues ($/Barrel)

$55

Capital Cost Amortization

($5 to $10)

CO2 Costs (@ $2/Mcf for purchase;

$0.70/Mcf for recycle)

($15)

Well/Lease Operations and Maintenance

($10 to $15)

Economic Margin, Pre-Tax ($/Barrel)

$15 to $25*

Cost and Economics of CO2 EOR ( Source: DOE, 2009)

The cost and economics of the CO2 enhanced oil recovery have been illustrated in the table below: As of March 2011, the price of the oil is $115/ barrel, assuming all the costs highlighted above remain the same , the profit margin would be around $60-$70/ barrel.

Guidelines for Safe CO2 – Enhanced Oil Recovery:

Some have asked whether captured CO2 can be stored in a safe manner — whether stored CO2 may leak out of its intended confinement space and either contaminate drinking water supplies or escape to the atmosphere. “Most detectable leaks that lead to elevated CO2 concentrations, and virtually all hazardous leaks, occur in volcanic areas that are highly fractured and therefore unsuitable for CO2 storage” (Benson, 2006).

Good site selection, comprehensive site characterization, proper injection rates, appropriate site monitoring, operation of the facility within established safety envelopes, coupled with the implementation of remedial measures if leakage is detected, assures the safe geologic storage of CO2

No, this is very unlikely. For well-selected, designed and managed geological storage sites, experts calculate that the rock formations are likely to retain over 99 percent of the injected CO2 for over 1000 years.

Any CO2 that is produced along with oil and natural gas is captured and re-injected. The company operating the EOR project bought the CO2 and expects to re-inject it if any is produced, to maximize its value. It only has value when it is used to remove oil from the rock formation underground, so there is a strong economic motivation to collect it for re-injection, either in the current project or another.

When a CO2 EOR flood is finished, the CO2 that remains underground, stays there. Monitoring efforts can be put into place to make sure that is true.

Can Storing CO2 Underground Cause Earthquakes?

Early research in the 1950s showed that the injection of fluids at sufficiently high pressures can cause “hydrofracturing” or fault activation or slippages along pre-existing fractures (in places where faults already existed). These could induce small-to-medium-sized earthquakes. Based on an improved understanding of local and regional stresses in the earth’s crust, guidelines have been developed to prevent injection-induced micro-seismicity. Now, regulatory agencies limit injection rates and pressures to avoid unintentional hydro-fracturing. Micro-seismic monitoring is often done early in a project to establish safe operational parameters for injection.

No. Oil companies have been injecting CO2 in West Texas for decades and have not caused any earthquakes. Large volumes of water have been re-injected into oil fields all over the country without any evidence of the injection having caused earthquakes.

Carbon dioxide sequestration projects will operate under similar guidelines. Storage site locations will be carefully selected to avoid such problems. In addition, there have been decades of experience with EOR (using CO2 injection) and natural gas storage projects without encountering such problems. There is also some limited experience in Japan, where a CO2 storage site was subjected to two earthquakes (unrelated to the stored CO2) in the 6.8 range on the Richter scale and experienced no leakage. (Source: Carbon Sequestration Council, 2009) Read more – http://powerplantccs.com/blog/2010/01/can-storing-co2-underground-cause-earthquakes-alberta-scientists-probe.html

Summary:

CO2 EOR is a promising technology to safely store CO2 underground so that it cannot contribute to climate change. While this technology has been implemented by the oil industry since 1972, further research is needed to ensure that the stored CO2 remains isolated from the atmosphere and the biosphere on the order of thousands of years and that the storage process remains as safe and economically viable as possible.

CO2 EOR is being used by industries as it seems to hold a great potential for the permanent storage of carbon-dioxide. Though many experts raise concern over the issues caused by geologic sequestration, studies reveal that the CO2 EOR could be one of the best alternatives for dealing with carbon emissions in a safe manner.

EOR can add value by maximizing oil recovery while at the same time offering a bridge to a reduced carbon emissions future. It also reduces the cost of sequestering CO2 by earning revenues for the CO2 emitter from sales of CO2 to oil producers.

The United States leads the world in both the number of CO2 EOR projects and in the volume of CO2 EOR oil production, in large part because of favorable geology. (Natural Resources Defense Council July 2008).

The key facilitating parameters are market oil price, CO2 delivered price and government incentives. It is the type and magnitude of the incentives that will draw the parties together to realise as much of the potential incremental oil prize. No other commercial solution has the potential to reduce CO2 emissions as much as CO2 for EOR.

Research studies reveal that the use of CO2-EOR yields an additional 6 – 15% of the original oil in place (OOIP) and therefore can produce 10 – 30% more oil from a chosen field.

CO2-EOR will result in additional jobs being created on platforms and onshore facilities. Also, the government commitment to help with costs for platform decommissioning will be further delayed.

Oil produced by CO2-EOR will usually not be recovered using conventional primary and secondary methods of extraction. Therefore the oil and its associated economic benefits will be lost if CO2-EOR is not implemented